In response to the growing unrest in the global financial and capital market spheres, Thailand’s baht is expected to undergo a continued downslide over the coming month and beyond. This forecast comes in light of the implied intent of the esteemed US Federal Reserve to potentially ramp up its benchmark interest rate. This is an analysis drawn by Poon Panitchpibun, an eminent strategist at the research centre of Krungthai Bank-Krungthai Global Market.
The strategist indicated that yesterday, the 21st day of September, recorded an opening for the baht at a value of 36.25 against the US dollar. This figure demonstrates a depreciating trend from the previous close at 36.07. A slow increase was observed in the value of the baht throughout Wednesday night fluctuating within the bounds of 35.86 to 36.23 per dollar. However, notably, the upward trend was interrupted under a surge in the worth of both the dollar and US 10-year bond yields as signaled by Federal Reserve’s implication of an imminent interest rate hike this year. Some experts are deducing this as a strategic move by the Federal Reserve to administer a gentle touchdown for a potentially turbulent US economy. This statement is further bolstered by recent adjustments in the economic forecasts for the current and next year.
In contrast, the cloud of inevitably continued rate increments is hovering over the US stock market. Consequently, it perceives a series of soaring rates in the coming times resulting in a surge of bond yields to 4.40% post the reiteration of policy statements and forecasts by the Federal Reserve. The Krungthai Bank research unit thus, on evaluating the situation, is predicting an even more dramatic depreciation in the baht and an extended duration of weak performance. This prediction stems from the Fed’s pledge to upkeep its high-interest rates for an extended period.
External factors also contribute to the anticipated struggle for the baht, with overseas investors likely to offload Thai assets due to the finance market’s current “risk-off” environment. Any major turnaround in the short term, however, remains a highly sceptical scenario.
Traditionally, the baht’s depreciation almost confronted the threshold of resistance levels, insinuating a further reduction potentially within a range of 36.50 to 37 against the dollar – an estimate dubbed undervalued by some. Krungthai Global Markets, however, speculate that transformational factors could usher the baht into a sideways movement or possibly an upward swing, projecting an appreciation to 35.80 to 36 against the dollar.
The uncertainty over the future monetary policy of the Federal Reserve combined with the overdue recovery of China’s economy continues to keep the global equity markets on the edge. Consequently, businesses are urged to utilise diverse hedging tools, comprising options and derivatives, as a shield against potential exchange rate risks.
The advisory to businesses extends to moderation of foreign exchange exposure via domestic currency-transactions, while duly accounting for transaction costs and developing well-thought-out hedging plans. Roong Sanguanruang, incumbent head of global markets and research at Bank of Ayudhya, illustrated investors’ anxiety arising from Thailand’s escalated public debt and fiscal burden, predominantly after the announcement of the green bonds issuance plan by Prime Minister Srettha Thavisin.
Reports say the 61-year-old Thai premier announced at the Sustainable Development Goal Summit held in New York this year of accumulating a staggering US $2.5 billion via the issuing of two sustainability bonds. This news saw a depreciation in baht this month with the largest regional downturn recorded at 3.2%, immediately followed by a 1.4% loss of South Korean won. The trajectory of the baht, however, has remained consistent with other regional currencies amidst a strengthening dollar.
Looking into the immediate future, Roong anticipates a continuing depreciation of the baht against the greenback through the first half of October owing to higher levels of uncertainty. However, moving past the mid-October mark, the baht is expected to firm up in comparison to the dollar, riding on the back of the peak tourist season.
Krungsri Bank has modified its prediction for the baht for the year-end. The new figure stands at 35 baht per dollar, marking a dip from the erstwhile estimation of 34 baht. Stay tuned for more dynamic updates on this evolving scenario.
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